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Cold Hits Europe, Heading to U.S.

It is cold in Europe and it is coming to the U.S. We are speaking of temperature departures on the magnitude of 15-20 degrees below normal. We have been faced with a more prominent model used by U.S. meteorologists at variance with the above model. However, Europe is experiencing very cold temperature and it is due to get colder still. But one piece of the puzzle is missing, and it is developing. If one can time the markets to the change in the western trough one can profit handsomely. We emphasize it is not quite there yet.

The three markets that will most readily respond to this development are heating oil, gasoil and nat gas. Rbob may go along for the ride (pun intended). There is always the idling factor in the cold weather, he said, tongue in cheek.

But there are other items that will tend to support the energy markets as the week progresses other than the weather. Greece is in the process of successfully buying back their bonds for the new Troika deal. This will help support the Euro. In China it was announced that factory output stood at an eight month high. There are signs of a turn around there, but housing remains very expensive, according to friends that went home to visit. Moreover, it does seem as if the new ruling elite will continue to stimulate the economy if needed.

Although development in the Middle East and North Africa do support the energy markets, the mood of the macro scenario is still one of pessimism. That will be the overriding concern the bulls will need to deal with. We feel that they will be pressured in the beginning of the week to prove the validity of their premise. In fact the energy markets are poised on the precipice of another decline. The budget talks in Washington will most likely be the culprit that pushes the risk markets off the cliff along with our country.

WTI

WTI

S2

S1

CLOSE

R1

R2

TREND

DAILY

8010

8533

8593

8692

8825

DOWN

WEEKLY

7181

8010

8593

8915

9545

DOWN

Daily Moving Averages: 21, 55, & 100: 91.13,94.92, 90.83

Weekly Moving Averages: 21, 55, & 100: 91.13,94.92, 94.84

Jan is seen moving lower in the early part of the trading week.

As we mentioned above this will largely be a disappointed response to the Washington negotiations.

Jan is perched upon a critical trend line for the continuation chart as one can see below.

We have this formation labeled as a developing A-B-C correction on the larger degree formation.

This model suggests that a break and settle below the trend will signal a probable drop through the 84.00 level.

If this action is seen Jan will test the monthly trend line at 80.00.

Jan will have minor resistance at 86.60 to 86.70 area. The upside pivot is 87.00.

The key upside pivot to the intraday chart is 88.25.

We are a seller of the rally. This will be at 86.35. The protective stop being placed above 86.75. This is an aggressive bearish play and may not be for everyone. However, the momentum indicator at the chart’s bottom and the term structure of the market both support lower prices.

The short-term cycles do not turn to the upside until the second week of December.